Public Bill Committee

[John Bercow in the Chair]

John Bercow: Before we begin, I have a few preliminary announcements. When I am in the Chair, right hon. and hon. Members may, if they wish, remove their jackets. Mr. Caton, my co-Chairman, will take his own view, and I am sure that he will inform you of that. Please ensure that all mobile phones, pagers and other such devices are turned off or switched to silent mode during Committee sittings.
There is a Ways and Means resolution in connection with the Bill, and copies are available in the room. I remind hon. Members that adequate notice should be given of amendments. As a general rule, my fellow Chairman and I do not intend to call starred amendments, including any that might be reached during an afternoon sitting.
The Committee will first be asked to consider the programme motion, on which debate is limited to half an hour. We will then proceed to a motion to report written evidence, which I hope we can take formally before we start clause by clause scrutiny.

Patrick McFadden: I beg to move,
That
(1) the Committee shall (in addition to its first meeting at 10.30 a.m. on Tuesday 14th October) meet
(a) at 4.30 p.m. on Tuesday 14th October;
(b) at 9.25 a.m. and 1.00 p.m. on Thursday 16th October;
(c) at 10.30 a.m. and 4.30 p.m. on Tuesday 21st October;
(d) at 9.25 a.m. and 1.00 p.m. on Thursday 23rd October;
(2) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 4.00 p.m. on Thursday 23rd October.
It is a great pleasure, Mr. Bercow, to serve under your chairmanship. I am sure that you will guide us fairly and wisely during our debates.
The programme motion sets out up to eight sittings for consideration of the Bill. That should be adequate time to consider the key issues. The Bill is not the longest before the House in this Session, but it contains many important measures, which we will come on to. I welcome the hon. Member for Huntington to his place. Reshuffles have not disturbed our ongoing dialogue, which has been in place for some time and will certainly continue for up to another eight sittings.

Jonathan Djanogly: It is, as ever, a pleasure to serve under your great chairmanship, Mr. Bercow. As the Minister said, it is good to be doing yet another Bill together, as the constant team amid the changes that we have seen. I congratulate the Minister on his recent elevation to the Privy Council. We broadly agree with the programme motion, but that depends, of course, on the number of amendments that appear over the next few days. However, as things stand, that is our position, and I hope that it remains so.

John Hemming: It is a pleasure to serve under your chairmanship, Mr. Bercow. I congratulate the Minister on his promotion to the Privy Council. He will find that the programme motion is as controversial as it was in yesterdays meeting, which took about two minutes.

Question put and agreed to.

Ordered,
That, subject to the discretion of the Chairman, any written evidence received by the Committee shall be reported to the House for publication.[Mr. McFadden.]

John Bercow: Copies of any memorandums that the Committee receives will be made available in the Committee Room.

Clause 1

Statutory dispute resolution procedures

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: I thank Members of another place who debated the Bill fully. The legislation we pass tends to look forward and to make reforms for the future, but this Bill begins with a legislative look over its shoulder. Clauses 1 and 2 are about returning to past practice in some ways.
Clause 1 provides for the repeal of the statutory dispute resolutions, which I will call the procedures, brought into force by regulation in 2004 under powers in the Employment Act 2002. When the procedures were introduced, the then Government Minister, Lord Sainsbury of Turville, said that we
are committed after two years to a review of how the procedures operate in practice.[Official Report, House of Lords, 23 February 2004; Vol. 658, c. 101.]
We did that both internally and through the review of dispute resolution carried out by Michael Gibbons and published last year. It is widely accepted, and the review by Michael Gibbons confirmed, that resolving disputes in the workplace as early as possible is desirable for all concerned. The tribunal system is important for access to justice, but it would be a mistake always to regard arrival at the tribunal as evidence of the systems success. Very often it is better if disputes can be resolved before reaching the tribunal. Over the years, the Government have tried to create a system that maintains the access to justice in the tribunals, but also encourages earlier dispute resolution. The 2004 procedures should, to some extent, be looked at in that light.
The procedures introduced a legal requirement for the parties in a dispute to seek to resolve it through what has become known as the three-step procedures. They require, first, one side to inform the other of the issue in writing; secondly, a meeting to discuss the matter; and finally, usually, an appeal process. It was important, and we will touch on it several times in our debates, that the procedures were not only written into law, as it were, but that they affected the balance of content and merit that a tribunal took into account when reaching a judgment. Under the current regulations, tribunals have to reject claims that do not meet the requirements concerning the submission of a written grievance and to increase or decrease awards if either side fails to complete the procedures.
An internal review in 2006 revealed concern among stakeholders about the impact of the procedures, so the then Secretary of State for Trade and Industry invited Mr. Gibbons to undertake an end-to-end review of the dispute resolution process. His terms of reference were to raise productivity through improved dispute handling in the workplace, to ensure access to justice for employers and for employees, and to reduce the costs involved for all parties. His report of March 2007 concluded that while the intention of the regulations had been right, their operation resulted in an unnecessarily high administrative burden for employers and employees and had unintended consequences which outweighed the benefits. Many businesses told the review that the procedures had led to the use of formal processes to deal with problems that could have been resolved informally. In my informal language, Gibbonss overall conclusion was that the procedures drove disputes into the formal process too early and that they increased legal involvement and costs to all parties. We are, of course, concerned not only with justice, but with costs. If there is a mechanism that can deal with disputes in the workplace while decreasing costs for the parties, but that does not compromise justice, we should introduce it. That is the intention behind clause 1 and other clauses.
The Government published a consultation document alongside the Gibbons review. Respondents endorsed the conclusions of the review. I well understand the principles behind the 2004 changes, which were to set out clear steps that people should go through when there is a dispute in the workplace. Those principles were sound, but in the light of two years experience of operating them it is clear that there were unforeseen results when they were enshrined in legislation.
The system that will replace the three-step procedures, which is set out in the following clauses, gives tribunals more discretion and will try to avoid elevating process over merit, which was a key focus for Gibbons. The Government propose through the clause to repeal the 2004 procedures, but at the same time we will put in place a package of measures to encourage the continuation and spread of good practice designed to resolve disputes in the workplace early. Part of that package is a revised ACAS code, which will be principles-based and concise. There will also be an incentive for parties to comply with the code in the form of a power for tribunals to adjust upwards or downwardsI stress that that will be at their discretionwhere the parties unreasonably fail to comply with the relevant ACAS code. There will also be enhanced resources for ACAS to run a new helpline, more pre-claim conciliation and so on.
We are abolishing the 2004 three-step procedures and replacing them with a new system that will be better funded and which is designed to resolve disputes in the workplace earlier. There will be up to £37 million of funding over three years for the set-up and running costs of the enhanced advice service. Additionally, funding for the early conciliation service has already been announced.
The Bill begins with a recognition that the 2004 regulations, while well intentioned, have resulted in an unforeseen formalisation of disputes. We are therefore acting to remove them. That will be the effect of the clause.

Jonathan Djanogly: We open the debate on the opening clauses of the Bill, which deal with dispute resolution and tribunals. I mirror the Minister in noting that significant consideration has been given to these provisions and to the Bill as a whole in another place. It did a pretty thorough job. I say here and now that I do not intend to rerun all of the debates that were held in the Lords where that is not required. Hon. Members will see that from the amendments that have been tabled thus far. However, that will be required in a few instances.
Furthermore, my party recognises that the clause, which deals with employment dispute resolution, is an admission by the Government that their 2002 reforms of dispute resolution have failed and that they need to go back to what was there before and start again some six years later. We support the provisions of the clause, as proposed by the Gibbons review, although we note how unimpressed we are with the process that has come to this position over the last six years.

John Hemming: My party, too, is sympathetic to the attempt to minimise the amount of paperwork involved in the process and to resolve issues on an informal basis at an early stage where possible. However, an eternal difficulty is that people are informed at the final stagewhatever that may beof how much paperwork they should retain at the early stages, once they have had the experience. I have seen this matter from many different sides, in various circumstances as a representative of employees in internal disputes and as an employer. The steps to try to resolve things through written submissions rather than a hearing are crucial. The Government should be aware that whatever the final conclusions are, they will inform the early stages.
Although it is good news that the Government have recognised that things have become over-formal, unless serious efforts are made to ensure that the issues of dispute are identified at an earlier stage, we will end up with the same problem in the same circumstances. So this is generally a good direction, recognising the errors that were made previously, but it remains a challenging area to resolve.

Michael Jabez Foster: I, too, am honoured to serve under your chairmanship, Mr. Bercow.
This is absolutely the right thing to do. Whatever we think about statutory codes, employers, particularly small employers and certainly individuals who are not members of trade unions, simply do not understand what they are about. Perhaps I should declare an interest. I have a practising certificate and was previously appointed as a part-time chairman of tribunals. It is clear that people do not understand statutory codes. They understand simple, straightforward guidance. May I therefore also congratulate ACAS on the draft code that the Minister has kindly circulated? If that is to be the new standard, it is a gold standard which certainly could be a precedent for much else in the world of employment law. On this, we are absolutely at one.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Clause 2

Procedural fairness

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: This is the second part of looking over our shoulder in the sense that the clause will return us to what we call the Polkey line in unfair dismissal cases. The House of Lords judgment in the 1987 Polkey case established the precedent that dismissal could be unfair purely on procedural grounds. However, the judgment also provided that in those circumstances the tribunal could reduce the compensation to the claimant, or eliminate it completely, in proportion to the likelihood that the dismissal would have gone ahead even if the correct procedure had been followed.
Why do we need to take such action? Having decided to repeal the statutory procedures, which we discussed under clause 1, we had to reconsider the procedural fairness provisions that went alongside them. That question was raised in the Governments consultation on the Gibbons review and an additional detailed review of the different options was issued alongside the main consultation. One optionthe one we have chosenwas to revert to the Polkey case law.
Another option was the no difference rule. Where a dismissal was unfair, provided that it could be shown that the failure to follow procedures made no difference to the decision, it would not need to be taken into account. Employees, in particular, felt that that was unfair because it gave employers a blank cheque to ignore procedures in these cases. On balance, we decided to recommend returning to the Polkey lineand, indeed, more people involved in the consultation supported returning to Polkey than to the no difference rule. Therefore, we propose to repeal section 98A of the Employment Rights Act 1996 to revert to the Polkey line of cases.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clause 3

Non-compliance with statutory Codes of Practice

Jonathan Djanogly: I beg to move amendment No. 14, in clause 3, page 1, line 11, after subsections, insert (1A),.

John Bercow: With this it will be convenient to discuss the following amendments: No. 11, in clause 3, page 1, line 11, at end insert
(1A) In section 199 (Issue of Codes of Practice by ACAS) at the end of subsection (2) there is inserted
(ca) discipline and grievance procedure, and.
No. 5, in clause 3, page 2, line 2, after with, insert the.
No. 6, in clause 3, page 2, line 9, leave out a relevant and insert the.
No. 8, in clause 3, page 2, line 10, leave out that and insert the.
No. 7, in clause 3, page 2, line 19, leave out a relevant and insert the.
No. 9, in clause 3, page 2, line 20, leave out that and insert the.
No. 10, in clause 3, page 2, line 26, leave out from (3), to end of line 28 and insert
the Code of Practice means any Code of Practice issued by ACAS under section 199(2)(ca).

Jonathan Djanogly: Although there are many amendments, they all do pretty much the same thing. They look at what constitutes the defined code of practice in dispute resolution. I shall consider some of the wider issues in the code in the stand part debate. I direct the Committee to the debate in the other place on this matter. Lord Bach, the then Minister, confirmed that six codes were currently issued under chapter 3 of the Trade Union and Labour Relations (Consolidation) Act 1992. By his own admission, the drafting of the clause was deliberately wide to allow for flexibility to cover other present or future codes.
While I agree that we have no interest in hamstringing ACAS, there is a need for certainty on this front. Employers are placed in a disproportionately burdensome position whereby they are forced to comply with broadly defined procedures. To prevent undue expense and time-consuming second-guessing of the legislative intention by employers, would it not be prudent to specify the relevant code from the outset as the ACAS code of practice on discipline and grievance procedures? Would that not be preferable to a definition that encompasses six separate procedures but expects compliance with only one? There is a need to give employers a clear, well sign-posted route for dealing fairly and efficiently with disciplinary procedures. It is a course of action that, for most, is a last resort. It benefits neither the employer nor employee to have an opaque legislative procedure, which leaves both parties in the dark. This is especially true given the financial penalties for non-compliance.

John Hemming: We broadly support the amendment. When there are statutory codes and a process that people need to follow, clarity is greater and things are easier.

Patrick McFadden: I thank the hon. Member for Huntingdon for the spirit in which he moved the amendment. My response is about future-proofing the Bill. The clause is important and goes wider than the subject matter of the amendments. I am sure that we will return to that on clause stand part. The clause is about the balance between content and merit, which I mentioned in my opening remarks. It includes the capacity to vary awards based on the degree of adherence to the codes issued under it.
The definition of a relevant code of practice was, as the hon. Gentleman pointed out, discussed in the other place. A relevant code of practice is one issued under the Trade Union and Labour Relations (Consolidation) Act 1992, which relates exclusively or primarily to procedures for resolving disputes. The hon. Gentleman correctly said that there was more than one code. There are currently six codes, some relating to disclosure of information to trade unions for collective bargaining purposes and others relating to industrial action, picketing and so on. Those matters need not concern us here and are not covered by the clause.
Of the existing codes, the definition of a relevant code of practice in the clause would apply only to the ACAS code of practice on disciplinary and grievance procedures. I endorse what my hon. Friend the Member for Hastings and Rye said a few moments ago about the valuable work that ACAS does and its expertise in these areas. The clause will also allow the application of adjustment in the context of future relevant codes issued by ACAS or the Secretary of State under the 1992 Act.
The amendments would have two effects. First, they would tie the definition of relevant Code of Practice to a code on discipline and grievance procedure issued by ACAS and not the Secretary of State. Secondly, they would provide expressly in the 1992 Act that ACASs power to issue codes encompasses codes on discipline and grievance procedure.
On the first point, ACAS certainly plays a crucial and valuable role in the resolution of workplace disputes, as I have said. In my time as employment relations Minister, I have valued my working relationship with ACAS. That organisation is sometimes in a strange position because its successes do not reach the news. It resolves many issues without their spilling over into a wider problem of industrial relations. The drafting of the clause to refer to codes issued by ACAS or the Secretary of State is therefore not intended to belittle or downgrade the role of ACAS. However, under the amendments, it would not be open to the Secretary of State to issue additional codes if he or she so wished. While there is currently no intention for the Secretary of State to issue a code of practice under this provision, the power exists and the Government do not wish to exclude the possibility that it might be used. It would therefore not make sense for tribunals to be unable to take account of the provisions of such a code, were it to be issued.
We believe the second proposal to be unnecessary. Under section 199 of the 1992 Act, ACAS has the power to issue codes of practice as it thinks fit to promote the improvement of industrial relations. That covers the issue that we are discussing.
We believe that the first effect of the amendments would be to tie the hands of future Secretaries of State in issuing codes alongside the ACAS codes. The second effect is unnecessary. On that basis, I hope that the hon. Gentleman will not press the amendment.

John Hemming: Does the Minister accept that employers and employees both need certainty and that the Department should be guided by that need when issuing guidance and identifying what is and is not relevant?

Patrick McFadden: I accept that clarity is needed for employers and employees. I do not believe that building in the possibility for the Secretary of State to issue a code detracts from that clarity. I have been quite clear that the code we are talking about in the Bill is the ACAS code.

Brian Binley: May I add my expressions of pleasure at serving under your chairmanship, Mr. Bercow? It is always clear, with no confusion whatsoever, and we are grateful for that.
May I, too, question the Minister about simplicity? The Bill was originally intended to be a simplification of what is pretty complicated law for laymen to deal with. That is what matters. We are dealing in many cases with very small business people who cannot afford recourse to the law on such issues. They try to do their best, but find it a nightmare. The complication that we create in this law leads to a compensation culture, which is not healthy, especially for small businesses. Over the next two years, it will be particularly unhealthy because, as we all recognise, such businesses face massive strains.
Having represented my company in days gone by in three tribunals, I know how much the law has been misunderstood. I know also how effective ACAS is in helping with these matters, particularly in supporting both sides in such disputes. To complicate the law beyond that process seems to me simply to add further problems, not only for small businesses that deal with these matters from an employer side, but for employees.
I would like to make one further point. Employees often have recourse to Citizens Advice and receive legal representation as a result, but many employers are unable to do that. There must be a balance. Establishing one code of practice is an important part of that balance because everybody knows where to go. Everybody knows in the first instance that ACAS is the authority. To complicate that particular trend seems unhelpful. I urge the Minister to think again.

Jonathan Djanogly: I had intended the amendment to be probing, but I will have to go away and think further about it. Having heard the Minister, I am not totally satisfied. I always feel rather uncomfortable when I hear a Minister say that we need to legislate for what might need dealing with in the future, and that the Secretary of State might need such powers. I get the same chilly feeling that I had yesterday evening when I heard the Home Secretary say that she was going to put her draft Bill in the Library.
I agree with my hon. Friend the Member for Northampton, South. Businesses expect clarity. They will want at the very least a full explanation of what this legislation means for them. There is potential for things to be changed and for them not to hear about it, and to therefore be confused as a result.

Hugo Swire: Does my hon. Friend agree that in the present economic climate, it is even more important to be clear about what we are asking businesses to do and how they should change? The cost implications of those changes will not be inconsequential, at a time when most companies are struggling to survive.

Jonathan Djanogly: My hon. Friend makes an important point that I will use when discussing other aspects of the Bill. I thank him for making it now as it is relevant.
We will go away and think about this matter further. In the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Jonathan Djanogly: I beg to move amendment No. 3, in clause 3, page 2, line 15, leave out 25% and insert 50%.

John Bercow: With this it will be convenient to discuss amendment No. 4, in clause 3, page 2, line 25, leave out 25% and insert 50%.

Jonathan Djanogly: This is another probing amendment, which attempts to discover the Governments reasoning behind the reduction in the power of employment tribunals to vary awards for non-compliance from 50 to 25 per cent.
The first question we must ask is whether this is yet another example of the Government tinkering with regulation unnecessarily. Section 31 of the Employment Act 2002 provided employment tribunals with the power effectively to punish employers or employees who failed to comply with the statutory disciplinary and grievance procedures. That Act enabledindeed, obligedemployment tribunals to vary awards made to employees by anywhere between 10 and 50 per cent., depending on what they considered just and equitable. I confess that I am no statistician, but I have trouble seeing how reducing the maximum figure from 50 to 25 per cent. does anything other than blunt the teeth of the employment tribunals and reduce the scope for dealing with vexatious claims.
Furthermore, by reducing the penalties for non-compliance, could it not be said that the suggestion to employers is that compliance with the new ACAS code of practice for discipline and grievance is somehow less important than compliance with the previous code? In the other place, Lord Jones of Birmingham, then a Minister, stated that the power to adjust awards up and down was
an incentive mechanism to encourage parties to follow good practice.[Official Report, House of Lords, 4 February 2008; Vol. 698, c. GC465.]
Furthermore, Michael Gibbons in his report recommended that there be an incentive to comply with the code. While I agree that those are laudable aims, I cannot help feeling that the incentive has had its legs cut from under it and become half the incentive that it could have been.
With that in mind, I ask the Minister two simple questions. What is the Governments rationale for changing the figures? Secondly, why choose 25 per cent.? I am also curious as to how the Minister and the Government envisage employment tribunals enforcing a non-statutory, principle-based procedure for dispute resolution.
The 2006 consultation on the Employment Act 2002 stated:
The Employment Tribunal Service will be able to monitor the number of cases where failure to comply with the procedural elements becomes an issue, including the number of cases where awards are adjusted because of procedural failings.
Yet from what I have been able to discoverI would appreciate it if the Minister put me rightno such figures have been produced. Can he tell us why and give us those figures now? Without knowing how the existing system has been working, how can we get the system right with this Bill?

John Hemming: We are perhaps more sympathetic to the Government on the 25 per cent. figure, but that obviously depends on the Ministers answer to the question at hand. Compliance with the codes is perhaps a procedural issue, rather than a substantive one. Inasmuch as the Bill is orientated towards the substance of the issue, we do not feel that it necessarily would be goodfor employers or employeesto revert to a greater focus on procedural matters and change the 25 per cent. figure to 50 per cent. Hence, we are generally with the Government on this.

Michael Jabez Foster: I certainly want to resist the amendment. I am surprised that it comes from the quarters that it does, because powers have previously been used against employers, usually small employers who have simply not understood the procedural requirements.

Jonathan Djanogly: My point was that we do not have the figures about how powers have been applied. I would be grateful if the hon. Gentleman put us right on those figures.

Michael Jabez Foster: My evidence is empirical. I agree that the substantive figures would be helpful. However, anyone who deals with small employersnot just as a lawyer but in their constituency surgeryknows that it is they who almost inevitably fall foul of the procedural rules. The hon. Gentleman seems to be penalising small employers because of some failure on their part, as we discussed earlier, to have the resources to access knowledge across the board. They do not even have the ability to go to Citizens Advice for support, as employees may. This amendment is therefore targeted against small employers, which is wholly unfortunate.

Patrick McFadden: Let me first deal with the point about figures. I do not believe that the tribunal service issues a breakdown of the cases in which the current variance of 10 to 50 per cent. is used, but it has told officials in my Department that the top end of that variance is rarely reached.
The more substantive issue before us is what the degree of adjustment on procedural grounds should be. I started my remarks today by saying that the Bill has a thread running through it, which is the balance between procedure and merit in tribunal cases. The hon. Member for Birmingham, Yardley got it right when he cautioned us against running against the Bills general direction by elevating procedure to too great a level above merit. My hon. Friend the Member for Hastings and Rye is also right when he says that the effect of the amendment, if accepted, could be that a small employer, having perhaps been substantially correct in the case presented to the tribunal, is hit with a 50 per cent. increase in the award against them because of the procedural weakness of not appealing to the ACAS code. The reason why we are removing the 2004 procedures, as set out in clause 1, is that, having reviewed their operation for a few years, we concluded that process was being elevated above merit. I fear that the amendments would lead us to fall back into that trap.

Hugo Swire: In reviewing that matter in the legislation, has the Minister or any of his officials discussed the implications with the Federation of Small Businesses?

Patrick McFadden: Yes. We discuss all our employment matters with the main business organisations regularly, including the Federation of Small Businesses, the CBI and others.
Another issue to remember is that, whereas the 2004 procedures required tribunals to elevate procedure above content, under the changes that we are bringing in, that judgment will be for the tribunal to make. The hon. Member for Huntingdon asked why the figure was 25 per cent. instead of another one. These matters are not an exact science; where we set the figure is a matter of judgment. Our policy aim is to not elevate process above content, and to not allow procedure to be simply disregarded. We want to get that balance right by allowing tribunals, at their discretion, to vary an award if there has been an unreasonable failure to adhere to procedures.
Clause 3 creates an incentive mechanism by proposing that tribunals be allowednot requiredto adjust awards by up to 25 per cent. if either party has acted unreasonably in failing to comply with the relevant code of practice. An adjustment of 50 per cent. would take us back to the system that the Bill is trying to reform and would perhaps repeat the unforeseen consequences of the 2004 procedures that we are trying to move away from.

Jonathan Djanogly: The first point to make is that the Minister has admitted that the figures do not exist, even though in 2002 it was claimed that they would. We are all operating in the dark; we do not know what the situation is. The Minister said that it is not an exact science; I say that he is sticking his finger into the wind. We are hindered by a lack of information but I am starting to see the problem, which the hon. Member for Hastings and Rye elaborated on and the Minister confirmed.
The hon. Gentleman and the Minister seem to be saying that they understand the concerns of companies and small businesses, and that they are unsure of the tribunals ability to get to grips with the problems of putting companies and employees on an even procedural footing and of dealing with vexatious claims. In other words, if the figure were 50 per cent., it could be used disproportionately against companies, rather than employees. In that context, I can see why the figure is capped at 25 per cent. rather than 50 per cent, but that does not make it right. Equally importantly, it shows that the Bill will not have the impact that the Minister has claimed.

Barry Gardiner: On a previous amendment the hon. Gentleman asked for increased clarity. Does he not accept that reducing the scope by which any penalty may vary from 50 to 25 per cent. gives the clarity and certainty that small businesses would welcome?

Jonathan Djanogly: No, I totally disagree with the hon. Gentleman. If companies and employees were to be treated on a fair and equal basis and the figure was 50 per cent., that figure could well act as a disincentive against vexatious claims. The point that the hon. Member for Hastings and Rye and the Minister made is that companies and employees may not be treated in the same way, and that companies may therefore lose out. I tend to agree. We do not know whether we can agree because we do not have the figures. So, as I said before, we are thrashing around in the dark here.

Patrick McFadden: Let me cast some light. The hon. Gentleman referred to vexatious claims. Surely he accepts that vexatious claims can be dealt with at a pre-hearing review and that the tribunal will recognise them as vexatious and will not find in favour of the person who brought them. To elevate this procedural device of saying that not adhering to the code should be matched with an ability to vary awards up or down by 50 per cent. will not deal with an issue of vexatious claims. They can either be dealt with in the current process, or the target would be missed.

Jonathan Djanogly: The Minister pre-empts my final point; I am going to agree with him. When we get on to vexatious claims we do have some figures. We will come on to that because I have great concerns about those figures, but to my mind it is impossible to separate the debate between the procedural and the vexatious; certainly, the average small company would not do so. For them, it is all part of the same problem. As the Minister says, the Bill separates the procedural from the vexatious and is rather toothless as a result.
Moreover, the Bill ignores the question of vexatiousness, so we have tabled amendments to remedy that. I am sad to see that those amendments are not being considered under this clause. I feel that they should be, but that is a decision taken by others and I respect it. We will come to that issue at a later stage, but the Minister will take the point that vexatious claims are not dealt with in the Bill, and that is what will most concern small businesses. On the basis of what we have heard, we will wish to reconsider our position on these clauses, and I seek leave to withdraw the amendment.

John Bercow: Order. I make it clear to members of the Committee that ordinarily when someone seeks leave to withdraw their amendment, I will immediately put that question to the vote. Similarly, if an hon. Member seeks to push their amendment to the vote, I will immediately put it to the vote. In this case I have received a slightly belated indication from the hon. Member for Birmingham, Yardley that he wishes to speak on the matter and on this occasion I will happily allow him to do so. Hon. Members will quickly discover that I am a facilitator. I want them to contribute but unfortunately I am not psychic, so an hon. Member who wishes to catch my eye cannot rely simply on raising their eyebrow. They need to rise and indicate their wish to speak.

John Hemming: Thank you, Mr. Bercow. On a procedural matter, although my declarations of interest are a matter of public record, I should like to add to that record. I am a member of the Federation of Small Businesses, which has not been mentioned so far. I am an employer as well as having been on various sides of employment tribunals. The issue of substance is whether vexatious matters have any substance. Vexatious cases do not have any substance. Therefore they would not be found on a substantial basis, so this is totally irrelevant to the question of whether any application to a tribunal is vexatious. The question is whether it satisfies the procedural process. The Governments direction of travel is right. Perhaps we would prefer 22.596 rather than 25 per cent., but that is not really an issue of substance.

Jonathan Djanogly: I understand that the procedural formalities here mean that I must again seek the Committees leave to withdraw the amendment, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Patrick McFadden: I beg to move amendment No. 1, in clause 3, page 4, line 3, after Society), insert
Regulation 17 of the Cross-border Railway Services (Working Time) Regulations 2008 (SI 2008/1660) (breach of regulations).
I refer the Committee to proposed new schedule A2 on page 3 of the Bill, which sets out a list of jurisdictions to which the rest of the clause applies. In other words, those are the enactments under which someone could pursue a claim under the clause.
Government amendment No. 1 will add an enactment to that list. It is periodically updated as employment law evolves. As we have discussed, tribunals can apply an adjustment to proceedings under the jurisdictions, as set out in new schedule A2. That schedule replicates the jurisdictions listed in schedule 3 to the Employment Act 2002 and covers the vast majority of the jurisdictions of claims accepted by employment tribunals.
In a sense, the amendment can be put down to timing. Following Third Reading of the Bill in the other place, the Cross-border Railway Services (Working Time) Regulations 2008 came into force on 27 July. I am sure that all hon. Members noticed that at the time. Those regulations transpose a European directive on working conditions for railway workers on cross-border railway services. For example, they allow a worker to complain to an employment tribunal if his employer has refused to permit him to exercise rights relating to rest, break periods and so on. Regulation 17 was inserted into schedule 3 to the Employment Act 2002. This is a consequential amendment that will add regulation 17 to new schedule A2 as a jurisdiction to which the new adjustment provisions will also apply.

Jonathan Djanogly: In principle, we see no reason to oppose the amendment. Perhaps the Minister could clarify who constitutes a cross-border worker for the sake of the remedies provision. Does he have figures for the number of times such remedy claims have been successful, and in how many of those cases would a tribunal have varied the award on the basis of a failure to comply with the code? Finally, does the Minister believe that the amendment will have any cost implications?

Patrick McFadden: An example of the type of worker involved is somebody working on a railway service through the channel tunnel, which is a cross-border railway service. This provision will apply to their breaks, rest periods and so on. The hon. Gentleman asked how many times the tribunal will be able to take cases. That is a matter for the future, not the past. The cost implications for employers operating services through the channel tunnel will depend on the extent to which they adhere to the working time regulations. If the regulations are contravened, there will of course be a cost implication. As in all of these matters, there is a very easy way to avoid cost implications: to adhere to the law in the first place.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

Jonathan Djanogly: I would like to continue probing this part of the Bill. I note with interest the comments of Lord Henley in the other place on the circulation of the draft ACAS code. He was concerned that the other place was furnished with a copy of the draft code only on the morning that it was to be debated.
Given the importance of the new code and the fact that it forms much of the core of the Bill, I would be grateful if the Minister enlightened the Committee on the consultation process that was undertaken. I am aware that the consultation was initiated and subsequently undertaken by ACAS. I would be grateful if the Minister answered the following questions on the consultation process. What format did the process take and which organisations were contacted? What responses were received and will the House have the opportunity to see them?
A shorter, more concise code is to be welcomed. I know that most employers will welcome the emphasis on informal dispute resolution, but will the lack of guidance given by the principle-based approach increase the workload of the employment tribunals? I hope not, but will the Minster give his view? I thank him for sending through a finalised version of the codeI think that it arrived last Friday. He will appreciate that we have had a short time to review it, and we will need to seek peoples views and possibly come back to him at a later stage.
Having looked through the code, I would like the following points, on the codes paragraphs, to be addressed. The advice at point 5 of the original draft code issued by ACAS stated:
Employers and employees should do all that they can to resolve disciplinary and grievance issues in the workplace. Recourse to an employment tribunal should only be a last resort.
Why has that express and clear statement been removed? Point 8 states:
In cases where a period of suspension with pay is considered necessary.
Some employment lawyers have been saying that there is a need to clarify that, given the number of possible reasons for those cases. Is there a need to specify the situations where it is needed? In point 13, the phrase workers is used in the body of the section, yet the title states employees. We need consistency, especially as the words may convey different ideas and roles. In point 20, should further misconduct not become any misconduct, thus removing any impression that the subsequent misconduct needs to be associated with the former? It would also ensure that minor misconduct does not slip through the net. After point 33, should powers to investigate the reported grievance and then to discuss it with the employee not be included? The manager should be able to undertake an informal fact-finding procedure before formal proceedings are initiated.
What prevents employment tribunals and courts from seeing the code as statutory again, and how will the Government avoid that? Does ACAS see it as an organic code that will be reviewed and changed as needs be? If so, how frequently is it intending to review the code? How much discretion will employment tribunals have with regard to those who follow the spirit rather than the letter of the code, especially small businesses that may lack the human resources capability of others? How do the Government propose to make small businesses aware of the new code? That action is very important in itself.

John Hemming: All parties are in agreement with the Bills direction, which is towards clarity and ensuring that issues are resolved at an early stage with the least formalityalthough one does need formality at a certain point, so that people know that there is a formal grievance. I ask the Minister to recognise that there are different ways of achieving that clarity and informality. It is when one gets the whole package, including any departmental guidance, that one has what people have to face. Even if it is not specified in the Bill, departmental guidance that clarifies which code of practice to follow in which circumstance is important. It is straightforward for a smaller business to look it up and not to have to bring in legal advisers, even if some organisations provide legal support. Clarity and simplicity are the order of the day.

Patrick McFadden: It is right that we consider clause 3 in the round, and the ACAS code in particular. The code is an important part of the system, which will replace the 2004 procedures abolished by clause 1. It is more principles-based than some previous ACAS codes, because we have had an important dialogue with business and employee representatives. Some respondents have said that they do not want a lengthy procedural handbook that they have to cover, but that they want to know in broad terms what they have to do to be fair.
The hon. Member for Huntingdon asked whether tribunals have discretion in this area. They do and that is one of the changes that we are making from the 2004 procedures, where the elevation of procedures was more automatic. The ACAS code that we have proposed is more principles-based. The draft code has been circulated. It will allow tribunals greater discretion in the varying of awards.

Brian Binley: The Minister clearly recognises that vexatious cases can be a problem. He points to a strengthening of the code. My experience is that often, ACAS, and its code, have shied away from the issue of vexatious cases in reality because it is fearful of being labelled anti-employee or anti-employer. That is a real concern. Will the Minister take that into account and genuinely consider strengthening the code and the conciliation that follows in this respect? That would take away much of the concern that small businesses have about this matter.

Patrick McFadden: The hon. Gentleman makes a fair point about the fear small businesses have of vexatious claims. The changes that we are making will help in that regard. Part of the problem with the 2004 procedures was that they often placed the claimantif I may put it like thaton a fast track to tribunal, without going through the kind of conciliation that could have solved the problem outside of a tribunal. Later, we will consider ACAS and time limits on intervention, which is another relevant issue. The system that the Bill creates places greater emphasis on pre-claim conciliation. ACAS will have more money to do that through the extra funding, and an expanded helpline will help with that. We will go a long way towards meeting the hon. Gentlemans legitimate point.
I return to the questions that the hon. Member for Huntingdon asked about the code. The consultation on the code was with ACASs usual stakeholdersnot a term I always like, but I use it for want of a better one. They include the business organisations, some of which have been represented here, the trade unions and others in this field. I understand that about 170 responses were received during the consultation on the code. ACAS has a balance to strike because some peoples responses will be that they want the code to cover everythingto mention this, that and so onand others will be that they want less and less in the code. I think that ACAS is right to go for a principles-based code because we are trying to reach an end product that can be read and dealt with by businesses of all sorts and sizes. We are talking about busy people so it is correct to have something that is short, concise and principles based.
The publication of consultation responses is a matter for ACAS. The normal practice is that consultation responses are made available unless the person who submitted the response requests otherwise.
Is the code set in stone for ever? No, ACAS may revisit it. However, we have spoken of the virtue of clarity. When the code is settled, laid before Parliament and approved, I do not think that we will want ACAS to revisit it any more than necessary. In that way, businesses and employees will know what is involved and what is required of them.
The hon. Gentleman asked various other questions, for example, whether the size and resources of business could be taken into account. Yes, they can. He also mentioned the worker-employee distinction. That distinction is recognised in law, and the terms are used precisely. The hon. Gentleman will be awarethis is not a debate for this Billthat the employment rights and the obligations attached to a worker are different from those attached to an employee, and that distinction exists in law.
The new code is more principles based, and tribunals, employees and employers are asked to have regard to it. It also contains a discretionary power for tribunals to take into account such regard when assessing awards, and to adjust awards by up to 25 per cent. if either party has acted unreasonably in failing to comply with the code. I emphasise that the power is discretionary; it is for employment judges to apply depending on the case, without the rigidity of the previous automatic link to the statutory procedures that we discussed earlier. As we discussed in relation to the amendment that I moved, proposed new schedule A2 lists the enactments that apply to the clause and to the power to vary awards. I commend the clause to the Committee.

Jonathan Djanogly: I made some other points that the Minister has not mentioned, but I did make a lot of points. Therefore, I would be most grateful if he would go away and look at what I said, and address a letter to the Committee on some of those points.

Question put and agreed to.

Clause 3, as amended, ordered to stand part of the Bill.

Clause 4

Determination of proceedings without hearing

Jonathan Djanogly: I beg to move amendment No. 13, in clause 4, page 4, line 13, leave out only.

John Bercow: With this it will be convenient to discuss amendment No. 12, in clause 4, page 4, line 14, at end insert
(za) the proceedings relate to a money dispute, and.

Jonathan Djanogly: This is a probing amendment, to open up this important clause to wider discussion and perhaps clarification.
Michael Gibbonss 2007 report Better Dispute Resolution: A review of employment dispute resolution in Great Britain recommended that some cases before the tribunal should be dealt with by a fast-track procedure. His emphasis was on the settlement of monetary disputes on issues such as wages, redundancy and holidays, as the legal points at issue were simple and would be resolved more quickly by expert determination. However, in the debate in the other place the matter got confused, and it is necessary to make it clear when a full tribunal hearing is required and when a fast-track individual hearing is appropriate. Specifically, there seemed to be confusion in the other place about whether the Government intended the process to apply solely to monetary claims.
The balance that must be struck is between comprehensiveness, fairness and cost. The aim of an abbreviated fast-track process must be to deal quickly and fairly with those cases that do not need a full tribunal. I support proposals for a system that, in the words of the Minister in the other place,
will deliver swift and effective justice and help many claimants to receive redress early, potentially relieving them from hardship and uncertainty.
The Minister went on:
Respondents will also benefit from having cases determined at an early stage, freeing them to concentrate on their businesses.[Official Report, House of Lords, 4 February 2008; Vol. 698, c. 487.]
That is all well and good, but care must be taken not to place an individual in a weaker position for the sake of expediency. We need to limit the role of single-member tribunals to dealing with those cases that are so clear-cut as to be almost procedural. There is something worrying about limiting a claimants right to a review by a full panel in all but the most simple and incontestable cases.
If we are to introduce a written consent process, as envisaged by proposed new subsection (3AA) to section 7 of the Employment Tribunals Act 1996, provision must be made to ensure that that cannot be abused. I am especially concerned about the role of deemed consent to a single-person tribunal. To that end, I would be grateful if the Minister could make clear to the Committee the limits of the proposed new subsection: the claims to which the fast-track process would apply, and what form consent in writing to a single-member tribunal would take.

John Hemming: This comes down to the good old article 6 question of whether people are having a fair hearing. The bigger issue that needs clarification is proposed new subsection (3AB). Logically, if both parties agree that there should not be a hearing, there will not be one. That is entirely fair. There is a point about fast track. If we aim to resolve things prior to tribunal in the conciliation process, one would hope that there was a fast track in initial determinations to suggest such a resolution.
We see no reason why the word only should disappear, although it seems otiose in the circumstances, as the tribunal would have to be given a power to determine something without a hearing. Therefore if it does not have that power, it will not be able to determine it without a hearing. That should be limited. The circumstances are reasonable, but some clarity is needed under proposed new subsection (3AB) because employers who feel that they have responded and are then told that their response does not count would have a real problem. Perhaps the Government should considering tabling an amendment on Report.

Nick Palmer: I should like to say how much I look forward to serving under your chairmanship, Mr. Bercow. I appreciate the point made by the hon. Member for Huntingdon, but the amendment does not seem to address the key issue. If there is mutual consent or if one side has not bothered to put in a substantive case, it seems obvious that the matter should be fast-tracked, entirely independently of whether it is a money issue or something else. I take the point made by the hon. Member for Birmingham, Yardley: we need to be clear about the exact meaning of proposed new subsection (3AB) because there should not be any doubt. We have sufficient trust in the tribunal system to believe that a reasonably adequate request for a hearing would not be dismissed purely on frivolous procedural grounds.

John Hemming: Does the hon. Gentleman agree that it is particularly important to indicate to a respondent that their response has not been accepted and that they could submit an alternative before any written determination?

Nick Palmer: That sounds reasonable to me.

Michael Jabez Foster: Indeed. The point has been made about how an employer as a respondent has the opportunity to make his case. I ask the Minister to look at the current procedural rules more generally. Perhaps I can give him a short example of a local case that came to my notice. The employer did not receive the notice in time, or so he claimed. He sent something in slightly latetwo days after the final date. The rules currently say that he cannot be heard. The only option was to go through the whole process with him sitting there watching, but not taking part, and then subsequently appealing to the AT to see whether there was another way. I do not know what happened as a result of all that. But the draconian nature of the current rules, which debar people from taking any part in proceedings, is unlike any other jurisdiction. In every other part of the legal system, so far as I am aware, by incurring a penalty or making a payment to the court or whatever, there is a way back into the proceedings. Uniquely within the tribunal rules, that does not apply. I ask the Minister to have a look at that if he agrees that it is an injustice.

Patrick McFadden: The clause was indeed the subject of considerable debate in the other place. That is understandable, because it deals with a traditional part of the tribunal process, and perhaps people are led to expect a full hearing with the tribunal chair and two lay membersor wing members as they are sometimes known. The question posed is whether that is always necessary in all jurisdictions and in all cases. Earlier we discussed faster and perhaps less costly mechanisms for resolving disputes, which is really what the clause is concerned with. The question at the heart of amendment No. 17 is: If we are to have a system of written determinations or determinations without a hearing, what jurisdictions should that cover?
The first point to make is that tribunal chairmen can already sit alone and deal with certain jurisdictions, so that is not new. I have written several times to hon. Members who have asked what jurisdictions I have in mind. They are largely, but not entirely, the same as those jurisdictions in which a tribunal chair can already sit aloneunlawful wage deductions, breach of contract, redundancy pay, holiday pay and minimum wage cases. The only difference is the addition of holiday pay.
That is the type of case to which we are referring, and the question at the heart of the amendment is how we define that in the Bill. Our intention, if introducing such a procedure, is to define in secondary legislation those jurisdictions to which it would apply. Were such a system to be introduced and prove successful, those jurisdictions might or might not change over time in the light of experience. The Governments view is that it makes more sense to specify the jurisdictions and the type of cases to which the procedure would apply in secondary legislation. Also, the regulations and rules would be laid before Parliament, which would allow us greater flexibility to amend the jurisdictions in the light of experience while of course retaining proper parliamentary oversight. That is a judgment about what needs to be on the face of the Bill, and it is how we intend to proceed.
The hon. Member for Birmingham, Yardley asked about proposed new subsection (3AB). The secondary legislation consultation looked at default judgments and how parties might have a way back into proceedings, a point to which my hon. Friend the Member for Hastings and Rye also referred. We are currently considering the responses to that and will announce any changes we might make in due course.
In conclusion, I believe that the type of jurisdiction is best defined in secondary legislation. That would allow us the flexibility to make adjustments in the light of experience if necessary.

Jonathan Djanogly: I thank the Minister for his clarification on the areas to which the clause is likely to apply. He said that that would be finalised in secondary legislation. I will go away and think about whether items of such importance merit being put on the face of the Bill, rather than going through secondary legislation, and I might well come back to that at a later stage. I take the point made by the hon. Member for Broxtowe that the amendment only loosely makes the point that I intended to make, but I raised it on a probing basis because I thought it was important that we had a debate about the fairness of the procedures whereby someone would effectively give up their rights. I think that the hon. Member for Hastings and Rye and, to an extent, the Minister recognised that. I am pleased that we have had the debate and will think a little further on it. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 ordered to stand part of the Bill.

Clause 5

Conciliation before bringing of proceedings

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: Clause 5 brings us on to the duties and powers of ACAS. At present, ACAS has a dutyI stress that word, dutyin certain circumstances to conciliate in cases where no claim has been presented. The effect of the clause will be to change that duty to a power.
It may be helpful to explain the context of this change, which is an important underpinning element of our package of changes to the dispute resolution system. As we have heard throughout this morning, ACAS has a good record of achieving settlement in the period after a claim is made to an employment tribunal but before the process of the tribunal hearing. Currently, it also has a duty to offer conciliation in certain cases that are capable of becoming the subject of an employment tribunal claim where both parties request it, or where one party makes a request and the conciliation officer judges that there is a good prospect of success.
This duty is not new; it has been on the statute book since the 1970s. However, during the 1980s in particular ACAS found that some employers were using this pre-claim conciliation duty simply to obtain an ACAS settlement, as the basis for a legally-binding agreement to underpin severance arrangements that had already been agreed without the involvement of ACAS. Also, the nature of the duty on ACAS to provide conciliation was such that it could lead to ACAS being asked to assist with cases that were never likely to become the subject of an employment tribunal claim, at the taxpayers expense. That was not the intention of the duty.
In response, the ACAS council decided that conciliators should interpret the duty strictly in the spirit that was intended, so that the pre-claim conciliation service would be focused on cases that were otherwise more or less certain to become the subject of a tribunal claim. In turn, that had the consequence that ACAS steered away from actively promoting this service, even though it could be valuable. The number of pre-claim conciliations carried out since has been small; it has run at around 1,000 a year in recent years, making up less than 2 per cent. of the conciliation activity of ACAS.
The Government see clear benefits in making the conciliation services of ACAS more widely available in disputes that have not yet reached the stage of a tribunal claim but are likely to do so; making that change is an integral part of these reforms. If a dispute can be resolved before the parties set out their positions in a formal and legal way, that can save considerable time and costs for all concerned. A total of 85 per cent. of respondents to the consultation following the Gibbons review supported the proposal that ACAS should be given additional resources to provide such services.
I have already referred to the additional resources that the Government are making available to ACAS in order to achieve that aim. Those resources are considerable. However, we also think that it is appropriate to give ACAS the power to target properly pre-claim conciliation on those cases where it thinks that it can make the most difference and be the most valuable. That is really the purpose of the clause.
It will then be open to the parties in such cases to decide whether to use the service. Regardless of whether the parties take advantage of this pre-claim conciliation, if the dispute subsequently turns into a tribunal claim they will still have access to ACAS conciliation services in the post-claim period, in the usual way.
In short, we are trying to ensure that ACAS is able to manage effectively the new case load that we wish it to take on, without having to restrict the use of its services unduly and without having to transfer resources from other parts of its operation into an area where it has a duty to respond to every request. So we want more pre-claim conciliation; we have given ACAS more resources to achieve that, and we also want to give ACAS the power to use its discretion to apply those resources where they would be best used. That is the purpose of the clause.

Jonathan Djanogly: The clause deals with encouraging conciliation. I am happy to say that we agree with the thrust of these proposals. In the other place, there was significant debate on the relative merits of conciliation and mediation. Perhaps that was because many mediators were involved in that debate. I am not a mediator. I have since heard in a roundabout way that ACAS is generally not keen on mediation as a form of dispute resolution. There are certainly some circumstances in which mediation is a better way of moving forward than conciliation. Does the Minister agree with the claim that I have heard that ACAS steers clear of mediation when it should sometimes go in that direction? What is the Governments attitude to mediation? If he thinks that there are situations where mediation would be more appropriate, how does he intend to promote it?

Patrick McFadden: Mediation is a perfectly fair and appropriate part of the armoury. I have not heard under the wire or on the grapevine that ACAS is somehow reluctant to engage in mediation or is hostile to it. The question that has been in ACASs mind is the one that I raised in my opening remarks on the clause. It has a duty to carry out pre-claim conciliation, but it has no capacity to target that where it can be most effective. Therefore, that service and duty are not promoted. That situation ends up where we do not want to be, which is with less pre-claim conciliation than we would like to see.
The clause will free up ACAS and, at the same time, give it more resources. In clauses 1 to 7 we are attempting to create a system that provides the maximum chance for disputes to be resolved before they get to the door of the tribunal.

John Hemming: Accepting what the Minister says, there is the facility to encourage people to follow the code of practice and adhere to proposals from conciliation. People must try to reach an agreement and will find themselves in a procedural anomaly if they fail to adhere to that agreement. Therefore, there will be the 25 per cent. penalty. Is that the Governments intention?

Patrick McFadden: The Governments intention is to encourage people to settle disputes outside the workplace. The code offers certain help in doing that by setting out procedures to be followed. As the introduction to the code says, dealing with these things informally can often help. That is a direction that we want to go in. Of course, we always have to balance that with the right of access to a tribunal. That touches on some of the amendments that we will discuss later.

John Hemming: I made a blunder in my question to the Minister. Would the Government consider saying in the code of conduct that if the conciliator suggests a figure and the employer or employee does not adhere to it, but does not get substantially more or less, there will be a procedural penalty? That is often the case with other judicial proceedings, although there are obviously no cost issues here. However, if the conciliator says that something is worth £10,000 and the employment tribunal then says that it is worth only £9,000, could there be a procedural penalty for the employer or employee?

Patrick McFadden: I am not sure whether that would constitute a procedural penalty. I do not want to place myself in the shoes of the tribunal chair. I have no doubt that tribunal chairs will look at such matters, take into account efforts or proposals that have been made at the conciliation phase and consider everything in the round. With this clause, we want to maximise ACASs effectiveness by giving it the discretionary power to target its resources on the conciliation cases where it can have most effect with the increased budget that has been provided by the Government.

Question put and agreed to.

Clause 5 ordered to stand part of the Bill.

Clause 6

Conciliation after bringing of proceedings

Question proposed,That the clause stand part of the Bill.

Patrick McFadden: Clause 6 is important because it refers to time limits. The laudable intention of the procedures set out in 2004 was that, in order to focus minds on settling early, there would be time limits on ACASs ability to offer its services. In practice, minds are often not concentrated until much closer to the tribunal hearing, by which time ACAS cannot offer its services because it is beyond the time limits. Therefore, the clause will remove the time limits on ACASs duty to offer conciliation in cases once they have been presented to the employment tribunal. That will mean that ACASs services will be available for both sides right up until the moment the tribunal hearing takes place. We feel that that can be of benefit to both employees and employers.
I never forget that the context for all of this is the significant estimated reduction of up to £170 million in costs for business because of the Bills measures that will reform dispute resolution. Part of that is because the Government, rather than having businesses spend all of that money in tribunals, have increased the resources for ACAS and removed the time limits so that it can offer its services in a much greater part of the process.
Since 2004 the duty to conciliate has been subject to time limits of either seven or 13 weeks, depending on the jurisdiction concerned. ACAS retains the discretionary power to provide conciliation after those prescribed periods have expired, but under the clause, those time limits will be removed and ACAS will be able to offer its services in that much-expanded way. Gibbons found that the time limits had not achieved their desired intention and that parties were still realising close to the hearing day that they wished to settle but found that an ACAS conciliation was no longer available. Over 70 per cent. of respondents to the consultation agreed that those restrictions on the availability of ACAS conciliations should be removed. The Government agree, so the clause will repeal the relevant provisions and, like clause 5, is part of our effort to make ACAS even more effective in the future than it has been in the past.

Michael Jabez Foster: I certainly would like to support the clause, because the time limits have been an impediment to settlement. The nature of industrial tribunal cases is that people do not concentrate their minds until the last moment, even when orders for directions are made. That is how people work, and perhaps we work like that sometimes. It is certainly the case between employers and employees and their representatives. Frequently the strength of the case is not known until statements have been interchanged as a result of an order for directions or something of that nature. If all the facts are on the table quite late in the proceedings, perhaps ACAS can play its greatest role at that point.
I acknowledge that some costs might be involved in reaching that stage that could have been dealt with earlier if ACAS had had an earlier intervention, so I hope that it will not abandon the possibility of early resolution because it has a longer period in which to do it. ACAS, too, might be subject to the ability to leave things until the last minute, which would be a detriment. If it can go in early and be there late, that would have a great effect.

Jonathan Djanogly: We welcome the removal of the time limits and the resulting expanded and more adaptable service that ACAS can deliver.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.

Clause 7

Compensation for financial loss

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: I want to say a brief word about this final clause dealing with dispute resolution. It inserts a new provision into the Employment Rights Act 1996 to empower employment tribunals to order employers to compensate workers for the full financial loss they have sustained as a result of unlawful deductions from wages, including failure to pay the national minimum wage, and non-payment of redundancy awards.
For the moment we should put ourselves in the shoes of a worker entitled to the national minimum wage who does not receive it. We all have constituents who may be in that position and we have some understanding of just how difficult it is for someone in that position to make ends meet. The denial, contrary to the law, of perhaps a couple of hundred pounds, is something that we could probably all deal with. It would not make us become overdrawn, but to those on the minimum wage it can make the difference between just getting by or ending up in real trouble. That is what this clause is about.
If someone incurs bank charges for going into overdraft as a result of such an unlawful non-payment, the clause would be available to the tribunal to help compensate for that. I stress that it is as a direct result of the non-payment and it is drawn tightly, but it is recognition that financial loss can result from things like unlawful deductions from wages or non-payment of redundancy awards.

Hugo Swire: This all looks very well on paper as we debate it here, but what is the application of this in reality, particularly for casual workers from eastern Europe who are subject to gangmasters? How can this be enforced in that respect?

Patrick McFadden: It is enforced by the tribunal. We will discuss migrant workers and the gangmasters, agencies and so on in the following clauses, but if I continue I may be able to enlighten the hon. Gentleman.
Employment tribunals already have powers to extend awards to full financial loss arising out of claims for holiday pay and breach of contract. The clause will allow workers to bring a combined tribunal claim covering both breaches of the law in all these areas, and claims for compensation for financial loss arising from such breaches. At the moment, workers can obtain the compensation in the claims covered by the clause only via a separate claim to the civil courts. The clause will remove the need for claimants to make a separate claim. It is also designed to encourage employers to make the correct payments in the first place.
The payments that an employment tribunal may currently order the employer to pay or repay under these circumstances are limited to the amount arising from the employers direct liability. This means that financial losses incurred by a claimant, which are over and above the amount owed but which can be attributed to the non-payment, can be pursued only through the civil courts. Such losses might include, for example, charges incurred if a direct debit has failed or punitive interest on bank accounts that go into the red.
I will refer later to the work of the Governments vulnerable worker enforcement forum, which I have chaired over the past year. One of the issues raised time and time again in that forum is just how marginal the existence of some workers is. Such workers are dependent on timely and correct payments, so it is absolutely right that financial loss, which occurs as a result of them not receiving those payments can be taken into account by the tribunal.

Lorely Burt: May I welcome you to the chair, Mr. Bercow? May I also congratulate the hon. Gentleman on his well deserved elevation? We welcome the clause, but we have expressed concerns about how financial compensation should be calculated, particularly interest on the total outstanding amount. It is welcome to hear the Minister talk about bank charges incurred as a result of not paying moneys in a timely way, but how feasible will it be for a tribunal to calculate the award? He rightly points out that many of those affected will not have been paid even the national minimum wage. Using bank charges to give fair restitution to employees might not help a considerable number of those affected. My hon. Friend the Member for Brent, East (Sarah Teather) has previously raised the issue of using interest charges. Where it is not possible to get an idea of bank chargesperhaps if the relevant person does not even have a basic bank accountcould a similar interest charge payment be used to ensure that there is fair restitution?

Barry Gardiner: I wish to speak about this because we are all considering the issues of people who might be facing unemployment and redundancy, and the measure is extremely relevant in the current financial situation. It is abhorrent that someone should seek to avoid paying legitimate redundancy payments to any employee. In such a situation, the failure to pay appropriate redundancy moneys can be the sort of financial interruption that leads ultimately to someone defaulting on their mortgage, thus leading to foreclosure and a dramatic effect on their whole life. Even if such a person could get back into employment within three or four months, the non-payment of redundancy moneys might precipitate the loss of a family home. I am delighted that the clause puts in place appropriate compensation for people who have suffered financial loss as a result of such events. It should be welcomed by both sides of the Committee, and I congratulate the Government on introducing it.

Patrick McFadden: Let me begin by acknowledging the comments of my hon. Friend the Member for Brent, North. He is absolutely right that the clause is timelymore so than in recent years, given some of the problems that our constituents face.
The hon. Member for Solihull is right that the hon. Member for Brent, East raised the issue of interest on Second Reading. However, if my memory serves me correctly, and it may not, she was talking about minimum wage arrears, which we will deal with shortly, in clause 8. As for the question of how someone would prove that losses are directly related to the non-payment, the provision is not new. It already applies to holiday pay, so tribunals are used to it. We are simply extending it. I should like to point out the key phrase in the clause. Subsections (7)(1) and (2), propose a new subsection (2) in section 24, and a new subsection (5) in section 163, of the Employment Rights Act 1996. The last line of new subsection (5) will read
to compensate the worker for any financial loss sustained by him which is attributable to the non-payment of the redundancy payment.
It must be directly attributable and, of course, there must be evidence, but that is for the chairmen of tribunals to judge. We are extending provisions for holiday pay to other matters, in recognition of the fact someone who is unlawfully denied money, and who is dependent on every pound of their wages, could incur other charges through no fault of their own, as well as lose their wage.

Hugo Swire: Will there be an appeal system and, if so, how will it work? If someone is made redundant and does not receive the proper compensation to which the tribunal says they are entitled, they could default, for instance, on child support payments. People with a tight budget could have other commitments, such as standing orders, mortgages or whatever, but they could choose not to pay to maintain the Child Support Agency payments. The plaintiff could argue that they were unable to maintain their child support payments because of a reduction in the amount of money to which they were entitled, but they could at the same time maintain payments on white goods or mortgages. Who will adjudicate on whether someone has found a clever way around a commitment or whether it is a genuine entitlement to the plaintiff?

Patrick McFadden: The answer to the hon. Gentlemans second question is that the tribunal chairman or members would adjudicate. On the first question, all tribunals have an appeal mechanism to the Employment Appeal Tribunal. It tends to judge appeals on points of law rather than reconsider a whole case, but there is an appeal process in tribunals.

Barry Gardiner: Does my hon. Friend agree that in relation to the financial loss that has been incurred, the tribunal will look not at what has resulted from the lossthe non-payment of one bill rather than another or the reallocation of fundsbut whether there has been a directly attributable financial loss? Therefore, the points made by the hon. Member for East Devon are not relevant to the clause.

Patrick McFadden: As I said in response to the hon. Member for Solihull, it is set out clearly in proposed new subsection (5) to the 1996 Act, which clearly refers to
financial loss sustained by him which is attributable to the non-payment of the redundancy payment.
I hope that I have clarified the matter.

Question put and agreed to.

Clause 7 ordered to stand part of the Bill.

Clause 8

Arrears payable in cases of non-compliance

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: We now come to the provisions that deal with the minimum wage, which are important. We touched on the minimum wage when discussing clause 7, and clause 8 deals with minimum wage arrears.
It might be helpful to the Committee if I set out the difference between how arrears are dealt with now and how we intend to deal with them in future under the provisions in clause 8. Let us consider the case of a mythical minimum wage worker who finds that they have been paid less than the minimum wage over a period of two or three years. As hon. Members will know, the Low Pay Commission recommends the rate of the minimum wage and, since its inception, it has increased year on year. My Sunday Mirror told me a couple of weeks ago that, if there is a change of Government in future, that could change. It said that senior Conservatives have said that the minimum wage will whither on the vine. Ten years on, perhaps that was a revealing insight into Conservative party thinking. It is certainly not how the Government think. Under us, the minimum wage has increased both in line with average earnings and in relation to prices.

Brian Binley: The Minister has made a rather serious allegation. Will he provide us with the details of the people who said that? He says that they were senior Conservatives.

Patrick McFadden: I think we began proceedings by saying that written evidence would be put in front of the Committee. If the hon. Gentleman wishes me to furnish him with a copy of the Sunday Mirror, I will be very obliged to do so.

Brian Binley: I am grateful to the Minister. He has now put my mind at rest by saying that it was in the Sunday Mirror. That makes it all clear.

Patrick McFadden: I will leave that point.
In practice, the minimum wage has tended to be uprated year on year on the basis of recommendations from the independent Low Pay Commission. Currently, workers who find themselves being underpaid and therefore have minimum wage arrears discover that, when they report that and it is found that they have been underpaid and are entitled to arrears, they receive the minimum wage at the rate that was in operation at the time of the underpayment. In other words, they get their back pay, but lose out on the upratings that have taken place in the meantime. Such underpayments serve as inadvertent and unintentional loans from employees to employers. The clause will change that.
The Low Pay Commission has expressed concerns on this matter over the years. It expressed particular concerns in its 2007 report. We consulted on whether arrears could be calculated in a fair way, to take account of the depreciation in value of those arrears as a result of the uprating of the national minimum wage. The overwhelming majority of respondents agreed with the aim of making arrears fairer for workers in that way. The majority of those who expressed an opinion were in favour of calculating arrears by reference to the current rate of the minimum wage.
At this point I tread carefully, Mr. Bercow. I will attempt to take the Committee through the equation on page 6 of the Bill under clause 8. As hon. Members will see, the equation is A over R1, multiplied by R2. A is the amount of money calculated to have been underpaid to the worker, and R1 is the rate of the minimum wage at the time of the underpayment. For example, if the underpayment happened last year and the worker was underpaid for one hour, the £5.52 that was earned would be divided by the rate at which the minimum wage was paid, which was £5.52 per hour. That calculation reaches a time of precisely one hour. R2 is the current rate of the minimum wage. The formula takes an amount that somebody has been paid at the minimum wage and turns it into an amount of time in hours, based on the rate of the minimum wage at that time. In order to ensure that the fair arrears apply, that time is multiplied by the rate of the minimum wage at the time the incident is reported or found out. In the case of our mythical worker who was underpaid by £5.52 last year, they would then receive £5.73 as the fair arrears. That is the rate of the minimum wage since it was uprated.
The new method of calculating arrears is much fairer. Despite my poor teaching skills it is relatively simple, in that the concept changes an amount of money into an amount of time and multiplies that by the current rate of the minimum wage. It secures a measure of justice for workers who, as we agreed in discussion of clause 7, are often living at the margin and certainly cannot afford to lose out by giving what are, in effect, interest-free loans to their employers.

Michael Jabez Foster: Will it be the point at which the claim was submitted, at which the judgment was awarded or at which an agreement was reached that will determine the rate used? That is important, because there could have been a change in the rate. In the unlikely event that the commission should decide on a reduction in the minimum wageor in the even less likely event that the Tories should get in and reduce it, or do something of that orderwhat would be the safeguard that the formula would never result in a lesser sum? Theoretically, at least, the formula could result in that outcome.

Patrick McFadden: The rate that would apply would be the one in force at the time the judgment is given. My hon. Friend is right: sometimes these things can take time to come to fruition. He asked what would happen if the minimum wage were to fall. There will come a point in the next couple of years when the voters can take that into account. They have seen what was written in the Sunday Mirrorthere is a record to look atand that may be part of their decision. The provisions ensure that if the minimum wage were to fall, employers could not argue that they should pay back arrears at the lower current rate. Clause 8 provides that the current rate is used if it is higher than the rate that was in force when the underpayment was made.

John Hemming: The formula is a relatively complicated sledgehammer to crack an important nut, but the nut needs to be cracked. On the definition of the pay reference period, would a claim over two or three years during which there were several historic minimum wage rates require a number of claims? If we follow the statute verbatim, whatever that may be, mutatis mutandis, one may be forced to use only one historic rate, but several historic rates would need to be taken into account to get the right answer. Does the statute, when modified, achieve that?

Patrick McFadden: No, I do not think that separate claims would be required if someone were underpaid over three or four years. As I said, in the equation on page 6, R1 is the rate at the time they were underpaid. So if someone was underpaid for 10 hours work three years ago and then for another 10 hours work two years ago, each incident would be converted into a proportion of time, and all of it would be multiplied by the current minimum wage rate. Separate claims are not needed for each year. Simplicity is important. One of the advantages of the minimum wage is that it is clear and simple to understand.
That brings me to the point made by the hon. Member for Solihull about interest. It was argued when we were consulting on fair arrears that perhaps interest should be charged on top of the calculation that I have set out. However, if we were to do that, workers would be required to complete self-assessment returns for tax due on the additional element of arrears, or interest. It is not sensible to put minimum wage workers in the position of having to fill in a tax return for what would be relatively small sums of interest when we can deal with the heart of the problem through a simple, fair arrears calculation. This is a highly legitimate issue to raise, and it has been of concern to the Low Pay Commission. Through clause 8 we will ensure fair arrears for people who are underpaid the minimum wage.
There has been a great deal of discussion this morning about various clauses. This clause will be an important measure of justice for some of the lowest paid people in the country, and I commend it to the Committee.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.

Clause 9 ordered to stand part of the Bill.

Clause 10

Powers of officers to take copies of records

Jonathan Djanogly: I beg to move amendment No. 15, in clause 10, page 13, line 30, after them, insert
if copying facilities are not available at that place.
We are still dealing with the national minimum wage and the parts of it that deal with compliance. Let me say first that, despite whatever appeared in the Sunday Mirror, the position of the Conservative party is that given our support for the national minimum wage, to the extent that people want to break the law and not pay it, we are concerned for the rights of the employees and also for the rights of those employers who are not breaking the law and who are put at a competitive disadvantage as a result.
Our concerns about clause 5 and also about clause 11 fall into two different categories. First, we are concerned whether the provisions are proportionate in cases where civil liberties would be reduced as a result of them. Secondly, we have a more practical issue: we need to look slightly further to examine whether they will actually work and improve the current failings in the system. The second set of concerns is probably more suited to a stand part debate on clause 11, so we will come back to it then. The amendment, which is a probing amendment, is more closely related to the first category of concerns. It aims to limit the right for compliance officers to remove documents to those situations where it is the only practical way for them to continue their investigation.
The rule of law in this country maintains that we are innocent until proven guilty. To that end, compliance officers should not be able to infringe the rights of employers to run their business unmolested by Government agencies unless it is absolutely necessary. Given the expansion of technology in offices in the last decade and the availability of photocopiers, should officers not be encouraged, where practical, to take copies of relevant documents rather that removing originals in a way that might disrupt the running of the business? That is the nub of the amendment.
There was discussion in the other place of the need for these powers to ensure full and effective enforcement of the national minimum wage regulations. However, I must confess to having some scepticism about that assertion. I would have thought that the copying of documents should be the starting point and original documents should only be removed from offices if all other avenues have failed.
Given the possible significant disruptive effect of these powers, I would be grateful if the Minister could provide us with some figures for the number of occasions when the lack of copying facilities has prevented an enforcement action. It is important that we weigh the right of the business to operate unmolested by the state against the need for effective enforcement.

Barry Gardiner: I see the point of the hon. Gentlemans remarks. Clearly, however, one could then get into a situation in which the officers go in to copy documents, if that is possible, but when they ask for use of the photocopier, there is obstruction on the part of the employer, who says, No, Im sorry, youre not going to use my photocopier, or, Im going to charge you £1.20 a copy, or whatever.
All that such an amendment would do is put in place another obstacle that would become a point of dispute between the officers and the employers. I thought that the whole thrust of what the Committee wanted to do was to simplify things and get certainty. In that sense, it is much better that the powers should be as they currently appear in the Bill.

Jonathan Djanogly: I understand the hon. Gentlemans point, but it is not in tune with the reality. In the past, I have been involved in advising companies on the outcome of Office of Fair Trading raids, for instance, and know that the impact of removing documents, even if at an investigatory stage when no charges have been made, can be devastating to a companys business. I am not claiming that there will not be situations in which that will not be the correct way to go ahead. He mentioned the example of companies making it difficult to get access to the photocopier. If the company was making it difficult, the documents should be taken away, but my concern in that regard is that the starting point is that there should be as little disruption as possible. I am not sure that the clause, as drafted, would ensure that that is the case. We could improve the drafting.

Barry Gardiner: Does the hon. Gentleman accept that what he has just said is not what his amendment says? His amendment would simply insert
if copying facilities are not available at that place.
They might be available at the place, but they might be charged for at an exorbitant rate. Officers might be refused access to those copying facilities. What his amendment proposes is not the reasonable point of discussion that he has made.

Jonathan Djanogly: I accept the hon. Gentlemans assertion that the drafting is not all that it could be, which is probably why I announced it to be a probing amendment. I am making a point of principle, because I think that this could be like using a sledge-hammer to crack a nut.

Nick Palmer: Does the hon. Gentleman accept that the clause does not stipulate that officers are compelled to remove documents? If copies are instantly made available at no cost, it is quite possible that they could accept those.

Jonathan Djanogly: I accept that, but the reality is that if the enforcing officers are given the powers, they will often use them. It is incumbent on us, as legislators, to ensure that we minimise the disruption.

John Hemming: Although we share the concerns of the hon. Member for Brent, North about the drafting of the amendment, we want the Bill to reflect the principle that people operating on behalf of the state have the powers to do only what is necessary, rather than allowing them to take any documents from anywhere. The principle is a good one, but the drafting needs a bit of work.

Brian Binley: May I refer to the reality of the situation when the inspector calls? Hon. Members do not need me to remind them just how many inspectors can call on small businessesVAT inspectors, those looking at health and safety at work and a number of others spring to mind. In many instances, they create in small businesses a feeling of fear, and certainly great apprehension. We need to be very careful about the power with which we endow inspectors, specifically with regard to businesses run by members of our ethnic communities. Often they are not fully versed in the English language and have a sizable fear, brought with them from the culture of their countries, of inspectors who call. That needs to be taken into account much more in this respect.
The wording of the clause is imperfect. There is a vagary about the term copy records, about which the Minister might like to reassure us. I know that the term 
records must be returned as soon as reasonably practicable
is a legal phrase, but it is as lose a legal phrase as one can get. The Minister and I both know that sometimes the arm of bureaucracy is used to instil fear and apprehension. That concerns me enormously.

John Bercow: Order. What concerns the hon. Gentleman is naturally a concern to many people, but I gently say to him that the sentiments he is expressing relate to the clause and therefore potentially, if there is to be one, to the clause stand part debate. Sadly, his comments do not relate to the amendment. On that basis, I feel confident that he is about to draw his remarks to a close.

Brian Binley: You are absolutely right, Mr. Bercow, to bring me to the matter that I really want to talk about, which is the amendment itself, but you will appreciate that I had to create the colour first.
The truth of the matter is that we should do everything possible to ensure that inspectors do not remove documents that small business men might need to work on once the apprehension is planted in their minds that they could well face a bureaucraticindeed, legalproblem. The return of those documents as soon as is reasonably practicable leaves open a problematic issue that we need to attend to with more certainty.
I support the amendment because if it is practically possible to copy documents, it should be right and proper to do so. However, equally, I want the Minister to take accountI will refer to this matter in the stand part debateof the looseness of the wording in that respect. For those reasons, I support the amendment.

Patrick McFadden: Given what you have just said, Mr. Bercow, I am wary of setting out any context for my response. However, the context is important because we are not dealing with a new law; we are dealing with something that has been in place for 10 years and has become a familiar part of the labour market. Clauses 9 to 12 all relate to stronger enforcement of the minimum wage and context is important because we have 10 years of experience of how it operates. Most employers are perfectly willing to pay the minimum wage and treat their workers completely fairly, and when we discuss the policing and rules around those who do not, it is important to acknowledge that.
The hon. Member for Northampton, South referred to when the inspector calls. Sometimes minimum wage enforcement is criticised from the different direction of the inspector not calling enoughpeople do say that. It is important to make it clear to the Committee that the inspectors work in two ways. One way is in direct response to reports of non-payment of the minimum wage. That would be investigated and inspectors may visit a premises and so on. The other way they work is proactively on what we call risk-based inspection. We know that that is more likely to take place in certain sectors than others and that certain employers might have a track record in other areas. In a world of finite resources, we target the resources we have as well as we can.
On the amendment, of course, given that most employers are decent people, it will not be necessary to take records away. The current powers of the officers, who enforce the minimum wage by requiring the employer to produce records for inspection and copying them on the employers premises, are sufficient in the vast majority of cases. However, if an employer does not agree to the removal of such records, officers do not have the right to remove them to make copies. I agree with my hon. Friend the Member for Brent, North that the problem with the amendment is that it makes the question about the existence of the photocopying facilities the key point, when it is not. The key point is the co-operation of the employer.

Mary Creagh: Does my hon. Friend agree that in most companies that operate any sort of payroll facility, however basic, it will most likely be done, and should be done, through a computerised system in the interests of good record keeping? In the event of copies being removed from premises, the employer is very likely to have some form of copy or record available on a computer.

Patrick McFadden: My hon. Friend is right. Let us remember that the penalty regime, which was dealt with in clause 9, has increased for employers. A non-compliant employer who is underpaying will know that they are liable for an earlier and bigger penalty than under the current rules. The co-operation of the employer is key, not the existence of photocopying facilities, because it is quite possible for those to exist, but for the employer to say, Well, we have it, but you cant use it. In those circumstances, we would have delays and so on.
The hon. Gentleman, who is a very decent and honourable man, quite rightly raised the point about proportionality. The powers in clause 10 would be used only in that small minority of cases where enforcement officers cannot complete the review on the employers premises and where the employer refuses to allow them to remove the records.

Brian Binley: I thank the Minister for his remarks, and of course I understand much of what he is saying. However, will he comment on the line in the clause about how records should be returned
as soon as reasonably practicable?
I know that that is rightly part of the stand part debate, but will he comment on that, if the Chairman allows him to? Timing is important.

John Bercow: Order. The Minister will have every opportunity to comment in the clause stand part debate, which might follow.

Patrick McFadden: I shall obey the Chairmans wise guidance and perhaps return to that point during the debate on the clause.
I do not feel that amendment No. 15 would deal with the issue of the co-operation of the employer. One of the things raised with us time and time again is that we are dealing here with vulnerable workers who very often are fearful of reporting. We are also dealing with a system wherewe will discuss this in later clausescurrently, without the clauses that we are about to discuss, prosecution is often dependent on the willingness of a vulnerable and often fearful worker to testify in person. The provisions are all about enabling enforcement without always being dependent on such a worker coming forward. The examination of the records, particularly in the context of whether an employer is being obstructive, is a necessary part of that process, which is why I do not agree with the amendmentI am afraidand hope that the hon. Gentleman will withdraw it.

Jonathan Djanogly: The Minister just said that we are dealing with vulnerable workers. In some clauses, that is the case, but not in clause 10, which deals with authorities raiding what might be vulnerable companies. That is the issue with which we are dealing. We have raised our concerns about the fact that in some situations the authorities might not give adequate thought to the needs of the ongoing business of the company from which they are taking documents, probably in some kind of raid. I have heard the Minister try to explain why that is necessary, and I accept that the wording of the amendment is not perfect, which is why I shall not press it to a vote now. However, we will reconsider that point, and in the stand part debate I shall address related circumstances.

Mary Creagh: The hon. Gentleman said that he advised companies on dealing with the consequences of DTI raids. Presumably he would have talked to them about their risk management. Did he ever come across any companies that only had a single copy of their records? If so, would he have advised them of the risk they were taking in the event of a fire, flood or some such accident where those records got lost?

Jonathan Djanogly: First, the answer to your question is probably yes.

John Bercow: Order. I did not ask any question.

Jonathan Djanogly: The answer to the hon. Ladys question is probably yes. The largest companies often do not keep multiple copies of their records. More importantly, it is the smaller companies who probably would not be able to afford legal advice or would not even think of going for legal advice in relation to what they should have in the event of authorities raiding them. Those smaller companies are the companies that are most likely to be negatively affected by these provisions. Small companies often do not have the resources to take multiple copies of documents. They are surviving hand to mouth and perhaps may do their paperwork every quarter when they have to do their VAT return or whatever. That is the reality of small businesses. We still maintain that, as drafted, the clause could be a sledgehammer to crack a nut.

Patrick McFadden: I do not want to prolong this any more than is necessary, but I want to take issue with the hon. Gentlemans comment at the opening of his remarks that the clause was not dealing with a situation involving vulnerable workers. It most certainly is. We may have a situation, as sometimes we do, where vulnerable workers are fearful of reporting the non-payment of the minimum wage and prosecutions that would otherwise take place cannot take place because we have not given the inspectors the necessary powers to enforce the law. That most certainly involves vulnerable workers. In all the clauses relating to the minimum wage we are most certainly dealing with some of the most vulnerable workers in the country.

Jonathan Djanogly: I do not accept that. I am not arguing against enforcement. In fact, I am going to argue later that enforcement should be improved. I am not arguing even that raids should not happen where they are appropriate. I am simply saying that the clause as drafted does not give enough leeway for the reality of the circumstances that may exist for companies that are wholly innocent at the time they are raided. The downside of that could be very significant. We have covered the point. We will look at this again. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 10 ordered to stand part of the Bill.

Clause 11

Offences: mode of trial and penalties

Question proposed, That the clause stand part of the Bill.

Patrick McFadden: I just want to draw the Committees attention to one or two points in this clause. It relates to the mechanism by which criminal offences under the National Minimum wage Act 1998 can be tried. Criminal offences already exist under that Act so this does not create new criminal offences, but it relates to the overall strengthening of the penalty regime which we have just heard that the Conservative party supports. The overwhelming majority of cases of non-compliance with the minimum wage have been dealt with under the civil law. That will continue to be the case under the new regime proposed in the Bill.
The national minimum wage is enforced under current arrangements by Her Majestys Revenue and Customs. As I said, that is initiated either by a complaint from workers or through risk assessment, including targeted enforcement at low paying sectors. An HMRC enforcement officer will visit the employer, interview the employer and the workers, check the employers national minimum wage records and so on. The vast majority of cases are resolved with the employer repaying arrears to workers who have been underpaid, which we have discussed. It is only in cases in which Her Majestys Revenue and Customs cannot achieve payment of arrears to workers that the issue and enforcement notice requiring the employer to repay the arrears takes effect. Let me give the Committee some figures. In 2007-08, HMRC investigated 4,500 cases. It found non-compliance in 1,649 cases. Of those, 96 per cent. were settled without the need to issue an enforcement notice and HMRC had to resort to the formal mechanism of issuing notices in only a small number of cases.
Clause 9 changes the enforcement notice process. Following recommendations from the Low Pay Commission, we also want to make changes in other areas, too. I want to talk about the criminal sanctions that are affected by the changes that we propose in clause 11. The National Minimum Wage Act provides for a number of criminal offencesdeliberately paying below the minimum wage, failing to keep minimum wage records or keeping false records and obstructing enforcement officers. Currently, such offences can be tried only in a magistrates court in which the maximum fine is £5,000. Criminal conduct by employers is the exception rather than the rule.
As well as considering how we need to strengthen the enforcement regime with the penalties under the civil law, we also considered whether the sanctions for the criminal offences were sufficient. We concluded that in order to ensure a balanced spectrum of enforcement, the potential fine available to a criminal court when sentencing for an offence should be greater than the maximum penalty that can be imposed by notice of underpayment. Secondly, HMRCs investigative powers, which we believe are necessary and are proposed in clause 12, could not be used if the offences remained triable only as summary offences in the magistrates courts. The clause is important on its own and in relation to clause 12.

Jonathan Djanogly: We only have a few minutes, but I will make a start. There are some important principles in relation to this clause. My main issue is to address whether these provisions dealing with the level of penalty and mode of trial are going to fulfil their objective of improving payment of the national minimum wage. The underpayment of the national minimum wage is poor practice. It has a negative impact on both employers and compliant companies, with the former being underpaid and the latter being undercut. Further, those businesses that are undercut are often small local businesses which bear the resulting burden of unfair competition heavily. For this reason, we welcome the Governments proposal to address the issue of enforcement of the minimum wage, which comes on the back of recommendations of the Low Pay Commissions report. However, I have recently had the opportunity to review that report and I was surprised to read the figures that it recorded for enforcement actions taken by HMRC. In the period of 2006-07, it identified some 1,523 cases of non-compliance but issued only 71 enforcement notices and two penalty notices. The total value of underpayments was identified at some £3 million, with the average arrears per worker being £214, as against a figure of only £130 for the previous year.
The Committee is no doubt aware that under the National Minimum Wage Act, provision is made for criminal prosecution under six offences that relate to the payment of the minimum wage, the maximum penalty for which is £5,000. Those were not used for nine years until 2007 when two prosecutions were successfully made. One of them, a director of a day nursery, was fined £2,500 and ordered to pay costs of £500 for the offence of obstruction under section 31(5)(a) of the Act. More recently, there have been two further prosecutions, most notably, the case of a Sheffield butchers shop, which was fined £800 plus costs and ordered to pay more than £11,000 in compensation to two previous employees. The payment of that fine was due by 1 October. I would be interested to hear from the Minister whether it has been paid. My point is that we must not wonder why we are being asked to give HMRC more powers when those that it currently has are being used so sparsely.

John Bercow: Order. My understanding is that the room will be locked so that hon. Members can safely leave their papers here if they so wish.

It being One oclock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four oclock.